Financier Seeks Damages From Former Partners

By PETER LATTMAN

Published: November 19, 2010

Steven L. Rattner's antagonists include not only the New York attorney general but also Mr. Rattner's former business partners.

In an unusual filing made Thursday in New York state court, Mr. Rattner disclosed an arbitration claim he brought against the Quadrangle Group, the private equity firm he helped found.

The claim seeks damages against Quadrangle and its partners ''for their unlawful conduct and contractual breaches'' and for taking advantage of Mr. Rattner's departure ''to seize'' money owed to him.

Quadrangle said in a letter to investors that Mr. Rattner's filing was filled with inaccuracies and that the firm would contest his claims.

The dispute comes amid Mr. Rattner's other legal woes: On Thursday, the attorney general of New York, Andrew M. Cuomo, filed two lawsuits against him, seeking $26 million and a lifetime ban from the state securities industry.

Mr. Rattner's surprise court filing underscores the deep bitterness between Mr. Rattner and his former colleagues at the New York private equity firm. Mr. Rattner, once a top media industry investment banker, left his post as deputy chairman of the former Lazard Freres a decade ago to start Quadrangle with three colleagues.

In February 2009, he left Quadrangle to head the White House's auto industry overhaul effort. His departure put his former partners in a difficult spot. Not only was the firm struggling with its investments during the depths of the financial crisis, but it was also dealing with the government investigation into its dealings with state pension funds.

Quadrangle settled with Mr. Cuomo's office earlier this year over alleged improper payments made to a top adviser to the New York State comptroller for his help in securing a $150 million investment from the state pension fund.

The firm paid a $12 million settlement and, as part of the deal, disavowed Mr. Rattner's actions as ''inappropriate, wrong and unethical.'' At the time, a spokesman for Mr. Cuomo said that the Quadrangle executives involved in the conduct at issue in the case were no longer at the firm.

Thursday's state court filing by Mr. Rattner requested documents related to the New York pension fund investigation that his lawyers said would aid in his arbitration claim against the firm. He accused his former partners of effectively throwing him under the bus.

''Faced with the investigation, the Quadrangle parties had a choice: they could have either disclosed completely their involvement with the underlying facts,'' said the filing, ''or they could offer the New York attorney general a scalp. They chose the latter.''

In response, Quadrangle sent a letter to its investors on Thursday stating that Mr. Rattner's arbitration filing, initiated in September, came despite the firm's efforts ''to resolve our differences in a negotiated manner.''

''Unfortunately, his further filing today is filled with inaccuracies and misrepresentations, which continues his pattern of failing to take responsibility for his actions,'' the letter read. ''We will therefore defend ourselves vigorously.''

Mr. Rattner is also defending himself vigorously - from Mr. Cuomo. On Thursday, he settled an action brought by the Securities and Exchange Commission by agreeing to a two-year ban from associating with any investment adviser or broker-dealer and by paying $6.2 million.

''While settling with the S.E.C. begins the process of putting this matter behind me, I will not be bullied simply because the attorney general's office prefers political considerations instead of a reasoned assessment of the facts,'' said Mr. Rattner, who called the lawsuit politically motivated. ''This episode is the first time during 35 years in business that anyone has questioned my ethics or integrity.''

It is unclear how much money Mr. Rattner is seeking from Quadrangle in the arbitration claim. Mr. Rattner, 58, disclosed last year in government filings a net worth of at least $188 million.

Quadrangle continues to manage a $2 billion private equity vehicle but has decided not to raise another fund. The firm has retrenched substantially since Mr. Rattner's departure and is now exploring options that include the sale of a minority stake in the firm.

This is a more complete version of the story than the one that appeared in print.